Ultimate Parent: National Western Life Group, Inc. NATIONAL WESTERN LIFE INSURANCE COMPANY. Denver, Colorado

Transcription

1 Denver, Colorado A Ultimate Parent: National Western Life Group, Inc. NATIONAL WESTERN LIFE INSURANCE COMPANY Exec/Admin: 850 East Anderson Lane Austin, TX Web: Tel: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A Best s Financial Size Category: XIII Outlook: Stable RECENT DEVELOPMENTS Effective October 1, 2015, NWLIC established a holding company structure pursuant to a previously announced Agreement and Plan of Merger dated April 6, 2015, which positioned National Western Life Group, Inc. (NWLGI) as the parent holding company of NWLIC and its subsidiaries. NWLGI has replaced NWLIC as the publicly traded entity following an exchange of the Class A and Class B shares of NWLIC for equivalent shares of NWLGI. The updated structure provides enhanced flexibility to access capital markets; however, A.M. Best notes that the organization has no debt outstanding. RATING RATIONALE Rating Rationale: The ratings of National Western Life Insurance Company (NWLIC) reflect its favorable operating performance, growth trends in absolute and risk-adjusted capitalization, and favorable risk management procedures. Partially offsetting these positive factors are the concentration of the business profile in interest-sensitive products, challenges to maintain life growth in its domestic and international markets, and potential impact of the recent Department of Labor regu- Printed September 28, Page 1 of 7

2 latory changes. The ratings also acknowledge the company s existing exposure to life insurance business sold to residents in countries with lower sovereign creditworthiness through South America, the Caribbean, Eastern Europe, and Asia. However, this risk is largely mitigated by the consumer profile, accepting business only in U.S. dollars, and having no international subsidiary operations. NWLIC maintains a diversified business profile categorized into three primary reporting segments: domestic life, international life, and annuities. Consolidated statutory and GAAP earnings have been consistently positive in recent years, although statutory earnings have been somewhat volatile due to the mark-to-market accounting treatment of options used to hedge the equity indexed products. By-line earnings, however, have been primarily supported by the international life and annuities segments, as domestic life has recorded statutory losses and only modest GAAP earnings. Historical earnings have supported consistent organic growth of capital and equity, and in turn growth in risk-adjusted capitalization. The company employs favorable risk management procedures to proactively mitigate and hedge its primary risk exposures, including changes to interest rates and duration mismatches, equity market volatility, currency fluctuations, and sovereign risks. The company s strong growth in equity indexed life and annuities in recent years has resulted in a significant concentration of interest-sensitive liabilities, elevating the risk of duration mismatches and spread compression. The company actively monitors its annuity crediting rates and option hedges to maintain adequate spread margins. However, the persistent low interest rate environment could impact the company s operating results going forward. The company s domestic life market has been challenged to maintain sales growth due to intense competition from larger life insurance companies and the strategic decision to stop accepting business from certain international markets is expected to cause a reduction in new business premiums over the near term. Additionally, the inclusion of indexed annuities under the Department of Labor s planned regulatory changes could have a material impact on NWLIC s annuity segment. A positive rating action could occur following material expansion of the business profile into more creditworthy product lines that reduce the concentration of the business profile in interest-sensitive products. Factors that could result in negative rating action include an increased concentration of revenue or earnings in single product segments, an unfavorable trend in consolidated operating performance, and a material decline in equity or risk-adjusted capitalization as a result of operating losses or investment impairments. KEY FINANCIAL INDICATORS ($000) Total Capital Capital Asset Net Net Surplus Valuation Premiums Invest Net Year Assets Funds Reserve Written Income Income ,669, ,522 66,081 1,564, ,477 53, ,164,763 1,004,766 70,764 1,088, ,469 84, ,771,161 1,126,232 65,146 1,105, , , ,262,748 1,185,643 68,094 1,109, ,619 77, ,544,641 1,171,203 67,180 1,051, ,193 7,060 (*) Data reflected within all tables of this report has been compiled from the companyfiled statutory statement. BUSINESS PROFILE National Western Life Insurance Company (NWLIC) is a wholly owned subsidiary of National Western Life Group, Inc. (NWLGI). Effective October 1, 2015, NWLGI replaced NWLIC as the publicly traded entity and the prior shareholders of NWLIC own corresponding shares in NWLGI. NWLIC is licensed to sell life insurance and annuity products in 49 U.S. states (excluding New York), the District of Columbia, various U.S. territories or possessions, and Haiti. NWLIC does not maintain international operations, but it currently accepts applications sent to its Austin, TX home office from residents of various countries in South America, the Caribbean, Eastern Europe, and Asia. NWLIC manages its life insurance businesses between domestic insurance operations (U.S.) and international insurance operations. NWLIC s domestic operation focuses on the middle and upper-middle income markets, offering a full array of traditional life insurance products, including universal life insurance, term life and whole life, and annuities. In 2005, NWLIC introduced its first domestic equity indexed universal life product (EIUL). The EIUL portfolio has been a steady provider of domestic ordinary life sales over the past several years. Domestic annuity products are sold both on a tax qualified and non-qualified basis and include flexible premium (FPDA), single premium deferred annuities (SPDAs), equity-indexed annuities (EIAs), and single premium immediate annuities (SPIAs). The company s EIUL and EIAs provide the contract holder the ability to elect an interest crediting mechanism that is linked, in part, to an outside index including the S&P 500 Composite Stock Price Index as well as several international indices. NWLIC has been committed to its international insurance operations for over 50 years, serving as a strong competitive advantage for the Printed September 28, Page 2 of 7

3 company. A.M. Best recognizes NWLIC s international life operation as a key contributor to both premium growth and earnings, as well as offering geographic diversification. NWLIC s international life operations focus on foreign nationals in upper socioeconomic classes that have substantial financial resources by offering fixed indexed universal life, universal life, whole life, interest sensitive whole life, and term life denominated in U.S. dollars. A.M. Best notes historical claims experience due to natural causes has been similar to that in the U.S., principally due to the relative wealth and subsequent access to quality medical care of individuals insured. However, historical claims experience due to unnatural causes (accident and homicide) has been somewhat higher than U.S. claims experience and the international products are priced for the extra mortality. NWLIC markets and distributes products domestically through independent national marketing organizations (NMOs) who assist NWLIC in recruiting, contracting, and managing independent agents. The company continues to recruit additional distributors while also exploring alternative distribution channels such as partnerships with banks and broker-dealers. International applications are accepted and submitted by approximately 2,500 independent contractors, consultants, and broker-agents. Broker-agents are recruited, trained and prepared to sell life insurance through Executive General Brokers (EGBs) many of whom are second generation or have been submitting applications for life insurance to NWLIC for more than ten years. These EGBs have more intimate knowledge of their local market and prospective brokers. To better serve its international customers, NWLIC s website is available in English, Spanish, Russian, Portuguese and Chinese. In addition to its life insurance business, NWLIC has various non-insurance subsidiaries which have only modest impact on NWLIC s consolidated financial operations. The Westcap Corporation (Delaware) is a real estate management company managing various commercial real estate investments. NWL Financial, Inc. (Nevada) owns various non- Texas sourced investments such as preferred stock, common stock, and municipal bonds. NWLSM, Inc. (Nevada) holds investments in municipal bonds as well as the life interest in the Libbie Shearn Moody Trust Asset. Several other subsidiaries were transferred to the parent holding company through stock dividends. Territory: The company is licensed in the District of Columbia, American Samoa, Guam, Northern Mariana Islands, Puerto Rico, U.S. Virgin Islands, AL, AK, AZ, AR, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY. The company is also licensed in the Republic of Haiti. OPERATING PERFORMANCE Operating Results: National Western Life Insurance Company (NW- LIC) is a wholly owned subsidiary of National Western Life Group, Inc. (NWLGI). Effective October 1, 2015, NWLGI replaced NWLIC as the publicly traded entity and the prior shareholders of NWLIC own corresponding shares in NWLGI. NWLIC is licensed to sell life insurance and annuity products in 49 U.S. states (excluding New York), the District of Columbia, various U.S. territories or possessions, and Haiti. NWLIC does not maintain international operations, but it currently accepts applications sent to its Austin, TX home office from residents of various countries in South America, the Caribbean, Eastern Europe, and Asia. NWLIC manages its life insurance businesses between domestic insurance operations (U.S.) and international insurance operations. NWLIC s domestic operation focuses on the middle and upper-middle income markets, offering a full array of traditional life insurance products, including universal life insurance, term life and whole life, and annuities. In 2005, NWLIC introduced its first domestic equity indexed universal life product (EIUL). The EIUL portfolio has been a steady provider of domestic ordinary life sales over the past several years. Domestic annuity products are sold both on a tax qualified and non-qualified basis and include flexible premium (FPDA), single premium deferred annuities (SPDAs), equity-indexed annuities (EIAs), and single premium immediate annuities (SPIAs). The company s EIUL and EIAs provide the contract holder the ability to elect an interest crediting mechanism that is linked, in part, to an outside index including the S&P 500 Composite Stock Price Index as well as several international indices. NWLIC has been committed to its international insurance operations for over 50 years, serving as a strong competitive advantage for the company. A.M. Best recognizes NWLIC s international life operation as a key contributor to both premium growth and earnings, as well as offering geographic diversification. NWLIC s international life operations focus on foreign nationals in upper socioeconomic classes that have substantial financial resources by offering fixed indexed universal life, universal life, whole life, interest sensitive whole life, and term life denominated in U.S. dollars. A.M. Best notes historical Printed September 28, Page 3 of 7

4 claims experience due to natural causes has been similar to that in the U.S., principally due to the relative wealth and subsequent access to quality medical care of individuals insured. However, historical claims experience due to unnatural causes (accident and homicide) has been somewhat higher than U.S. claims experience and the international products are priced for the extra mortality. NWLIC markets and distributes products domestically through independent national marketing organizations (NMOs) who assist NWLIC in recruiting, contracting, and managing independent agents. The company continues to recruit additional distributors while also exploring alternative distribution channels such as partnerships with banks and broker-dealers. International applications are accepted and submitted by approximately 2,500 independent contractors, consultants, and broker-agents. Broker-agents are recruited, trained and prepared to sell life insurance through Executive General Brokers (EGBs) many of whom are second generation or have been submitting applications for life insurance to NWLIC for more than ten years. These EGBs have more intimate knowledge of their local market and prospective brokers. To better serve its international customers, NWLIC s website is available in English, Spanish, Russian, Portuguese and Chinese. In addition to its life insurance business, NWLIC has various non-insurance subsidiaries which have only modest impact on NWLIC s consolidated financial operations. The Westcap Corporation (Delaware) is a real estate management company managing various commercial real estate investments. NWL Financial, Inc. (Nevada) owns various non- Texas sourced investments such as preferred stock, common stock, and municipal bonds. NWLSM, Inc. (Nevada) holds investments in municipal bonds as well as the life interest in the Libbie Shearn Moody Trust Asset. Several other subsidiaries were transferred to the parent holding company through stock dividends. BALANCE SHEET STRENGTH Capitalization: NWLIC maintains a strong risk-adjusted capital position given its current business, insurance, and investment risks. The significant growth in interest-sensitive liabilities over the last several years, driven by indexed annuity deposits, generally requires significant capital to support policyholder obligations. The company s capital base has been supported by its overall profitable statutory net operating performance, a high quality fixed-income investment portfolio, strong cash flow analytics and an effective Asset-Liability Management process. Statutory capital had reported favorable growth in recent years, however the modest earnings and the transfer of several subsidiaries to the holding company caused a slightly decline in Liquidity: NWLIC maintains a highly liquid investment portfolio, comprised primarily of publicly traded investment grade bonds. NW- LIC s liquidity risk profile is supported by the strong surrender charge protection on the annuity policies; however, a significant increase in interest rates may cause disintermediation requiring the company to quickly liquidate some investments. The company has no outstanding debt on the balance sheet and retains access to $40 million through a bank line of credit for short term liquidity needs. Investments: NWLIC s invested asset base has increased significantly in recent years with annuity and single premium life sales. The company s strategy is to purchase investment grade bonds and hold them to maturity, as it is unlikely that a security would need to be sold to cover payments of liabilities given the company s strong positive cash flow and product features discouraging withdrawal of funds. The company s remaining invested assets consist of modest allocations to mortgage loans and common stock, however A.M. Best notes that almost all the stock holdings are equity ownership of its subsidiaries. Additionally, NWLIC holds a sizable notional amount of derivatives due to the index call options used to hedge the equity return exposure to on the indexed life and annuity policies. The company purchases options through several counterparties, and maintains collateral agreements to limit its net exposure. NWLIC s long-term bond portfolio is comprised almost entirely of investment grade bonds as the company does not purchase below investment grade securities. A.M. Best notes that the modest exposure to below investment grade bonds is the result of rating downgrades. The long-term bond holdings are well-diversified among government agency issues, corporate obligations, public utility securities and U.S. Government debt. The company has reduced its allocation to structured securities, including asset- and mortgage-backed securities, and increased its exposure to lower rated, investment grade corporate bonds. The company has some exposure to European debt instruments; however, these securities are not related to sovereign debt or financial institutions domiciled in the region. The commercial mortgage loan portfolio is comprised of primarily income-producing properties such as shopping centers, freestanding retail stores, office buildings, industrial and sales or service facilities, selected apartment buildings, hotels, and health care facilities. Printed September 28, Page 4 of 7

5 MANAGEMENT Officers: Chairman of the Board and Chief Executive Officer, Ross R. Moody; President and Chief Operating Officer, Kitty Kennedy Nelson; Senior Vice President and Chief Investment Officer, Patricia L. Scheuer; Senior Vice President and Chief Marketing Officer, Brian R. Bulakites (Domestic Marketing); Senior Vice President and Chief Administrative Officer, Robert Sweeney; Senior Vice President, Secretary and Chief Legal Officer, Rey Perez, Jr.; Senior Vice President, Treasurer and Chief Financial Officer, Brian M. Pribyl; Senior Vice Presidents, Riad Hasan (Information Services), Carlos A. Martinez (International Marketing), Charles D. Milos (Mortgage Loans and Real Estate); Vice President and Controller, Bruce E. Wood; Vice Presidents, Fabiola A. Best (Life Underwriting & New Business), Daniel R. Calderon (Client Services), James D. Egan (Human Resources), Luis V. Freire (International Sales Development), Paul T. Garofoli (Domestic Marketing), Mark D. Gulas (Actuarial Services), Doris Kruse (Policy Benefits), Gina B. Miller (Legal), Larry G. Scott (Actuarial Services), Anthony J. Zagar (Domestic Marketing); Medical Director, Carlos Gray, M.D. Directors: David S. Boone, Stephen E. Glasgow, Kitty Kennedy-Nelson, Ross R. Moody (Chairman), Louis E. Pauls, Jr., Elvin J. Pederson, Rey Perez, Jr., Brian M. Pribyl. Balance Sheet Assets ($000) YE 2015 Total bonds $ 9,870,487 Total common stocks ,310 Mortgage loans ,679 Real estate Contract loans ,746 Cash & short-term invest ,006 Prems and consids due ,074 Accrued invest income ,389 Other assets ,242 Assets $10,544,641 Liabilities ($000) Net policy reserves $ 9,029,025 Policy claims ,215 Deposit type contracts ,463 Interest maint reserve ,385 Comm taxes expenses ,871 Asset val reserve ,180 Other liabilities ,299 Total Liabilities $ 9,373,438 Common stock Paid in & contrib surpl ,062 Unassigned surplus ,127,140 Total $10,544,641 Printed September 28, Page 5 of 7

6 NATIONAL WESTERN LIFE INSURANCE COMPANY 12.0 Total Admitted Assets Years in billions of dollars FINANCIAL SUMMARY ($000) as of YE 2015 Capital & Surplus $ 1,171,203 Net Premiums Written $ 1,051,504 Assets $ 10,544,641 Total Life Insurance Issued $ 2,346,669 Total Life Insurance In Force $ 22,026,201 Printed September 28, Page 6 of 7

7 Why is this Best s Rating Report important to you? The A.M. Best Company is the oldest, most experienced rating agency in the world and has been reporting on the financial condition of insurance companies since policy, contract or any other financial obligation issued by an insurer, nor does it address the suitability of any particular policy or contract for a specific purpose or purchaser. A Best s Financial Strength Rating (FSR) is an independent opinion of an insurer s financial strength and ability to meet its ongoing insurance policy and contract obligations. An FSR is not assigned to specific insurance policies or contracts and does not address any other risk, including, but not limited to, an insurer s claims-payment policies or procedures; the ability of the insurer to dispute or deny claims payment on grounds of misrepresentation or fraud; or any specific liability contractually borne by the policy or contract holder. An FSR is not a recommendation to purchase, hold or terminate any insurance The company information appearing in this pamphlet is an extract from the complete AMB Credit Report. You may obtain the complete report by contacting Customer Service at +1(908) or customer_service@ambest.com. Please reference the company s identification number (AMB#) listed on this rating report. For the latest Best s Financial Strength Ratings along with their definitions and A.M. Best s Terms of Use, please visit Copyright 2016 A.M. Best Company, Inc. and/or its affiliates. All rights reserved. No part of this report may be reproduced, distributed, or stored in a database or retrieval system, or transmitted in any form or by any means without the prior written permission of the A.M. Best Company. While the data in this report was obtained from sources believed to be reliable, its accuracy is not guaranteed. Printed September 28, Page 7 of 7